Sequenom Misses, but Who Cares?

Oct.30.08 | About: Sequenom, Inc. (SQNM)

Near term results for Sequenom (SQNM) are really a moot point as we're looking to mid 2009 forward on this story; the main issue in this new and (not so) improved environment is making sure young companies have cash to get them to the point where they turn cash flow positive. The New York Times actually had an article on the struggles young biotech companies are having in this new world.

  • So many biotechnology companies talk about “extending the runway” these days, you might think they had entered the airline business. But for them, runway refers to the time before a company runs out of money. And with financial markets in turmoil, the runways are looking dangerously short for many small biotechnology companies.

Honestly any revenue, or margins or financial issues at this point outside of cash are meaningless in my assessment - but for historical context we'll post the results.

  • Sequenom reported total revenues for the third quarter of 2008 of $11.6 million, an increase of 18%, compared with total revenues of $9.8 million for the third quarter of 2007.
  • Gross profit margins improved in the quarter to 60.9% from 54.6% in the same quarter last year.
  • Operating expenses rose to $17.8 million from $11.2 million in the third quarter last year due to additional expenses associated with the research and commercial activities for the Companys molecular diagnostic programs and approximately $1 million in fees associated with new technology and intellectual property licensed during the third quarter.
  • The net loss for the third quarter of 2008 was $10.4 million, or $0.18 per share, compared with the net loss for the third quarter of 2007 of $5.5 million, or $0.14 per share.
  • We are pleased with our results for the quarter, remain cautiously optimistic for the fourth quarter, and are reaffirming our full year 2008 revenue guidance of $50.0 million, said Dr. Stylli. We expect the Genomic Analysis business segment will reach cash flow break-even during 2009 with current growth rates and operational leverage. We believe we have sufficient capital to commercialize our noninvasive prenatal tests that turn profitable on a consolidated basis in 2010 or 2011 without further equity financing requirements." (that's the only sentence that matters in the current report - debt is negligible)

  • Net loss is expected to be approximately $39 million, up from prior guidance of $36 million, due to costs expected in connection with the acquisition of the CLIA-certified laboratory [CMM] and other licensing activities.
  • Cash burn is expected to be approximately $36 million, compared with prior guidance of approximately $30 million, due to the expected completion of the acquisition of the CLIA-certified laboratory [CMM] and related capital expenditures required to prepare the laboratory for large volume commercialization, and intellectual property related expenses among other expenses.

The company presents at three health care conferences in November, but this is really a "milestone" story at this point; each step to the holy grail should add to valuation. This should be one of those home run or strike out type of stocks. Obviously we're here for the home run potential, but in this market where "risky, growthy" stocks are eschewed, and "investing" is laughed at while day traders play in the sandbox - it might struggle for a while.

Sep 23: Sequenom - All Systems Go on Down Syndrome's Test

Aug 13: Beginning Stake in Sequenom

Disclosure: Long Sequenom in fund; no personal position